Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › BPP Exam Kit question: IRR NPV
- This topic has 5 replies, 2 voices, and was last updated 6 years ago by John Moffat.
- August 23, 2016 at 11:29 pm #334805
Could you please help me to understand why below statement are true?
When cash flow patterns are conventional, the NPV and IRR method will give the same accept or reject decision (what does “cash flow conventional” mean?)
For the following statement, Am I correct if I say that as the IRR is the % of cost of capital when NPV is 0 any project with cost of capital below IRR is acceptable.
The project is financially viable under IRR if it exceeds the cost of capital.
Thanks in advance
GabriellaAugust 24, 2016 at 6:59 am #334846
Conventional here simply means an initial outflow followed by several years of inflows.
Your later statement is correct.August 24, 2016 at 11:28 am #334890
Unfortunately I still not understand the meaning of the first statement. Could you please help me with it?
Sorry about that
Thanks and Regards
GabriellaAugust 24, 2016 at 3:54 pm #334921
Most projects have an initial outflow (the purchase price) followed by a series of cash inflows – that is ‘conventional’.
However where there could be problems with IRR is if you had an initial outflow, then some inflows, then more outflows. That is not ‘conventional’.August 24, 2016 at 11:07 pm #335010
Thanks a million for your help. With your explanation everything makes sense.
GabriellaAugust 25, 2016 at 7:43 am #335072
You are welcome 🙂
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